Exploring 30-Year Fixed-Rate Mortgages: A Missed Opportunity for Canadian Homeowners?

In the United States, 30-year fixed-rate mortgages have become a cornerstone of homeownership. Offering predictability and long-term financial stability, they are immensely popular among Americans. Borrowers lock in a single interest rate for the entirety of the loan term, providing peace of mind that their payments will remain consistent for 30 years.

Yet, in Canada, such an option is conspicuously absent. Instead, Canadians are typically required to renegotiate their mortgage terms every five years, exposing them to fluctuations in interest rates and economic conditions. While this difference might seem like a small regulatory nuance, it has significant implications for Canadian homeowners.

Why Doesn’t Canada Offer 30-Year Fixed Mortgages?

The absence of 30-year fixed-rate mortgages in Canada isn’t due to a lack of demand. Canadian homeowners would likely embrace the stability that a long-term fixed rate provides, particularly in an era of economic uncertainty and rising interest rates. So why don’t lenders offer it?

1. Bank Risk Aversion
   Canadian lenders prefer shorter mortgage terms because they reduce the risk of being locked into an unfavorable interest rate environment. For instance, if a bank were to offer a 30-year fixed-rate mortgage at 5% and rates rose to 7%, the bank would lose out on potential profits for decades. By resetting rates every five years, banks can consistently adjust to market conditions.
2. Secondary Market Dynamics
   In the U.S., 30-year fixed-rate mortgages are often bundled and sold as securities in a well-established secondary mortgage market, supported by government-sponsored enterprises like Fannie Mae and Freddie Mac. This system allows U.S. banks to offload the risk of long-term mortgages while maintaining liquidity. Canada lacks a comparable system, making it more challenging for lenders to manage the risk of long-term fixed-rate products.
3. Regulatory Environment
   Canadian banking regulations are more conservative than those in the U.S. These tighter rules aim to safeguard the financial system but may stifle innovation in mortgage products. Lenders might be wary of offering 30-year fixed-rate mortgages without assurances that these loans can be sustainably managed under Canadian regulatory frameworks.

Is This Price Gouging?

The need to renew mortgages every five years often works in favor of Canadian lenders. Each renewal gives them an opportunity to reprice the loan at current market rates, potentially increasing profitability. Critics argue that this system is tilted in favor of financial institutions, and some even label it as a form of price gouging.

On the flip side, defenders of the current system argue that regular mortgage renewals keep Canadian homeowners in tune with the market and encourage financial discipline. They also point out that Canadian mortgage rates are often lower than U.S. rates because of this system’s flexibility.

The Impact on Canadian Homeowners

For homeowners, the lack of long-term fixed-rate mortgages introduces uncertainty. A rising interest rate environment, like the one seen recently, can lead to significant increases in monthly payments when mortgages are renewed. This unpredictability can strain household budgets and even threaten homeownership for some.

For example, a family who locked in a five-year term at a historically low rate of 2% in 2018 may now face renewal at 5% or higher. This shift could translate to hundreds—or even thousands—of dollars more in monthly payments.

Could 30-Year Fixed Mortgages Work in Canada?

Adopting 30-year fixed-rate mortgages in Canada would require systemic changes, including the development of a robust secondary mortgage market and potential government intervention to mitigate risks for lenders. However, the benefits to homeowners—stability, predictability, and long-term affordability—could outweigh these challenges.

If introduced, these mortgages could become a game-changer for Canadian families, shielding them from the volatility of rate hikes and fostering greater financial confidence. At the same time, the system would need safeguards to ensure that lenders remain solvent and competitive.

A Question of Priorities

So, is the lack of 30-year fixed-rate mortgages in Canada a form of price gouging or a prudent regulatory decision? The answer likely lies somewhere in between. While lenders benefit from the current system, the absence of a long-term option also reflects Canada’s cautious approach to financial risk.

What’s clear, however, is that Canadian homeowners deserve a system that prioritizes their financial security. A thoughtful exploration of 30-year fixed-rate mortgages could open the door to a more stable housing market—one that works for both lenders and borrowers.

Jenny is a business insurance broker with Waypoint Insurance. She can be reached at 604-317-6755 or jhansen@waypoint.ca.  Please connect with me on LinkedIn at https://www.linkedin.com/in/jenny-holly-hansen-365b691b/. Please connect with Jenny at https://bsky.app/profile/jennyhollyhansen.bsky.social

Jenny Holly Hansen is a cohost with Chris Sturges of the Langley Impact Networking Group. You are welcome to join us on Thursday’s from 4pm to 6pm at: Sidebar Bar and Grill: 100b - 20018 83A Avenue, Langley, BC V2Y 3R4

Jenny Holly Hansen is a cohost with Chris Sturges of the WRN News - Langley Edition

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